So, we already knew about some of the announcements before the chancellor, the Rt. Hon. Philip Hammond MP, spoke yesterday, so much so he even made a joke about toilets and leaks. As ever there was good news and bad news for taxpayers, a full summary is on our website but here are some good news/bad news highlights:

Capital allowances – a new Structures and Buildings Allowance (SBA) for non-residential buildings on eligible construction costs on or after 29 October 2018, this will enable business to claim 2% pa on cost

The corporation tax rate, as previously announced, will drop to 17% from 2020

Bad news

Capital allowances – the writing down allowance (WDA) on special rate pools, for things such as cars with CO2 emissions of over 130g/km, reducing from 8% to 6% pa

Capital allowances – discontinued 100% allowances for energy & water efficient equipment, although you will still be able to claim AIA’s

National Living Wage (previously National Minimum Wage) for over 25’s increasing from £7.83 per hour to £8.21 (which also has an effect on the auto-enrolment pension contribution cost)

Off payroll working (IR35) currently in force for public companies will be introduced on private medium and large companies (although not until 2020) – PAYE and NIC will be deducted from the deemed employee and Employers National Insurance will be payable by the company.

Stamp Duty – First time buyers of a qualifying shared ownership in a property of £500,000 or less will get an exemption from SDLT and this is backdated to 22 November 2017 (i.e. you can claim a refund)

Stamp duty refunds – the time to make a claim for a refund on the 3% supplement on buying your new home before selling your old home, has been extended from 3 months to 12 months from the sale of your old home (although the filing deadline for SDLT returns is reduced to 14 days after the effective rate of transaction)

Capital Gains – annual exemption increased from £11,700 to £12,000 pa

Bad news

Rent a room relief – you will actually need to have shared the premises during part of the time you are claiming the relief, effectively excluding income from places like Airbnb

Entrepreneurs relief – to qualify, the minimum period is extended from 12 months to 24 months

Capital Gains – lettings relief will only apply when the property is in shared ownership with a tenant, in reality this means very few people will qualify and therefore only get private residence relief on sale of their home, however this is subject to consultation and may well change

The above is only a brief summary of the proposed changes. For a more detailed breakdown please visit our website here.

If you have any questions about the budget, or how it will impact you or your business, please contact us on 0116 242 3400 and we will be happy to help.

Falling foul of the National Minimum Wage rules can be expensive – as well as having serious implications for employer reputation. Many firms have been named and shamed for getting it wrong – are you compliant?

Employer errors

The National Minimum Wage (NMW) keeps appearing in the headlines. Recently the Department for Business, Energy and Industrial Strategy (BEIS) announced that some 230 employers had been named and shamed for failing to pay NMW and National Living Wage (NLW). The retail, hairdressing and hospitality sectors were among the most non-compliant. Because of BEIS intervention, more than 13,000 low-paid employees were due to receive £2 million in back pay.

But the final price tag for employers who hadn’t kept the rules was much higher. Between them, they were also fined a record £1.9 million. Business Minister Margot James said there was a clear message to employers. ‘The government will come down hard on those who break the law.’

BEIS report that common employer errors include deducting money from employees to pay for uniforms, not accounting for overtime and wrongly paying apprentice rates to workers. So, what is the latest on NMW and how do employers keep on the right side of the law?

NMW and NLW – the basics

NMW is the least pay per hour most workers are entitled to by law. The rate is based on a worker’s age and whether they are an apprentice. NLW applies to working people aged 25 and over. From 1 April 2017, the rate ranges from £7.50 per hour for those aged 25 and over, to £3.50 per hour for apprentices under 19, or for those aged 19 or over who are in the first year of an apprenticeship. Changes to NLW rates are in the pipeline from April 2018, so employers may need to plan for these now.

NMW/NLW rates are reviewed by the Low Pay Commission, but it is HMRC who police the system. Employers can be faced with court action if they don’t pay NMW/NLW. Penalties for non-compliance stand at 200% of the back pay due to workers. The maximum penalty per worker is £20,000. There is a provision to reduce a penalty by half if unpaid wages and penalty are both paid within 14 days.

Not everyone qualifies for the NMW/NLW. These include people who are self-employed: volunteers: company directors: family members, or people who live with an employer and carry out household tasks eg au pairs.

But most other workers are entitled to NMW/NLW, including pieceworkers, home workers, agency workers, commission workers, part-time workers and casual workers. There are also rules regarding agricultural and horticultural workers, with slightly different small print for England, Scotland and Wales.

In calculating pay for minimum wage purposes, the starting point is total pay in a pay reference period – before deducting income tax and National Insurance. Some payments are not included, such as loans and pension payments.

To add to the complexity, there is also something called the Living Wage, which is an hourly pay rate, set independently by the Living Wage Foundation. This isn’t anything to do with the government, and any employer who pays this does so entirely voluntarily.

Latest guidance: social care workers

HMRC have updated their guidance to clarify how NMW applies in the social care sector for workers carrying out ‘sleepover shifts’, following confusion over whether such shifts qualified for NMW. BEIS had suggested sleepover shifts carried out before 26 July 2017 qualified for a flat rate allowance, not NMW. But the decision is that NMW does apply, and applies retrospectively.

This could have left employers with bills of up to six years in back pay and penalties. But from 26 July, enforcement activity for sleepover shift pay is suspended until November, with retrospective penalties for sleepover shifts before 26 July 2017 waived. The actual back pay is still due, unless employers can show they can’t pay. Although it is envisaged that underpayments will be pursued from this date, the government says it is committed to minimising the impact of future minimum wage enforcement in the social care sector.

If you would like to discuss any of this further then please get in touch 0116 2423400

Running a payroll can be time consuming and complicated and divert resources from the core activities of your business. We can address this by installing payroll software and training your staff. Outsourcing this activity also helps relieve the pressure and we can offer cost-effective solutions. We are able to provide the complete service, what ever the size or complexity of your business, or simply provide support when needed. If you would like a quote then please call 0116 2423400 or email info@torrwaterfield.co.uk

Deadline for submitting your 2016/17 self assessment return (£100 automatic penalty if your return is late) and the balance of your 2016/17 liability together with the first payment on account for 2017/18 are also due.

This deadline is relevant to individuals who need to complete a self assessment tax return and make direct payments to HMRC in respect of their income tax, Classes 2 and 4 NI, capital gains tax and High Income Child Benefit Charge liabilities.

There is a penalty of £100 if your return is not submitted on time, even if there is no tax due or your return shows that you are due a tax refund.

The balance of any outstanding income tax, Classes 2 and 4 NI, capital gains tax and High Income Child Benefit Charge for the year ended 5th April 2017 is due for payment by 31st January 2018. Where the payment is made late interest will be charged.

The first payment on account for 2017/18 in respect of income tax and any Class 4 NI or High Income Child Benefit Charge is also due for payment by 31st January 2018.

If we have already dealt with your self assessment return on your behalf you need take no action.

If you haven’t completed your self assessment return yet please contact us, we can help. 0116 2423400 or send us an email info@torrwaterfield.co.uk

Yesterday saw a budget that focused, as expected, on housing and a stormy economic forecast. Our full summary is available on our website, but the key tax developments are summarised below.

Personal Tax Rates and Allowances

The personal allowance is currently £11,500 and will increase to £11,850 in April 2018. The higher rate threshold similarly increases from £45,000 to £46,350. Phillip Hammond reaffirmed his commitment to raise these thresholds to £12,500 and £50,000 respectively by 2020.

National Insurance for the self-employed

After the embarrassment of Mr Hammond’s U-turn earlier this year after attempting to abolish Class 2 National Insurance and increase Class 4, it was announced that in order to give sufficient time for a more popular proposal to be devised, there will be a delay of one year before any reform.

Capital Gains Tax

After unfavourable consultation, the proposal for a 30-day window between Capital Gains arising and the tax being due has been deferred until April 2020.

Research and Development

Large companies claiming relief for research and development under the RDEC scheme will see their credit increase from 11% to 12% as part of plans to help the economy grow after Brexit.

Corporation Tax

Indexation Allowance – a long standing relief for companies making capital gains will be frozen from 01 January 2018. This allowance protected companies from gains that arise as a result of inflation and as a result no relief will be available for inflation accruing after this date. This move is perhaps unsurprising, with property investors more often operating through a limited company as a result of this allowance and the increased taxation of landlords in recent budgets.

Stamp Duty

With the youth vote rocketing in the last election, the government has decided to act further on the concerns that first time buyers are struggling to get on to the property ladder. Stamp duty will be abolished immediately for first time buyers purchasing properties worth up to £300,000. Those buying their first houses in expensive areas such as London will pay no stamp duty on the first £300,000 of properties costing up to £500,000.

Value Added Tax (VAT)

The VAT registration threshold will remain at £85,000 p/a for two years from April 2018. This will come as a relief for many, as some predicted this could be lowered to nearer the EU average of £25,000.

Making Tax Digital (MTD)

As announced in July, no business will be mandated to use MTD until April 2019, and then only for VAT obligations. The scope of MTD will not be widened until April 2020 at the earliest.

The above are only the areas that I feel will be relevant to the majority of our clients, other areas and greater detail can be found on our website, click here.

The government have issued information on how Making Tax Digital for Business (MTDfB) is expected to work for VAT once the rules are introduced in April 2019.

Under the proposed rules, which have been issued subject to consultation, VAT registered businesses with turnover over the VAT registration threshold will be required to submit their VAT return digitally using software. Businesses with a turnover above the VAT threshold (currently £85,000) will have to:

It has also been confirmed that MTD will be available on a voluntary basis to other businesses, for both VAT and income tax.

Exemptions will be available where HMRC are satisfied the business is run by a practising member of a religious society or order whose beliefs are incompatible with the use of electronic communications, some insolvent businesses; or where HMRC are satisfied that it is not reasonably practicable to make a return using an electronic return system for reasons of disability, age, remoteness of location or any other reason.

The proposed rules include provisions that where a business is in scope for MTD the business must use functional compatible software to meet the new requirements. This software will either be a software program or set of compatible software programs which can connect to HMRC systems via an Application Programming Interface (API). The functions of the compatible software include:

keeping records in a specified digital form

preserving digital records in a specified digital form

creating a VAT return from the digital records and providing HMRC with this information digitally

providing HMRC with VAT data on a voluntary basis and

receiving information from HMRC via the API platform that the business has complied.

Businesses will need to preserve digital records in the software for up to six years. The digital records include:

‘designatory data’ including the business name, principal place of business and VAT registration number together with information about which VAT accounting schemes they use

the VAT account that each VAT registered business must keep, by law, and

information about supplies made and received.

Further information on the required information can be found in Annex 1.

The government will make the final detailed requirements available to the software providers by April 2018 to allow time for the software to be developed and tested prior to the rules coming into effect from April 2019.

VAT returns

Businesses within the scope of MTD for VAT will be required to submit their VAT returns using their functional compatible software.

The information contained with the VAT return will be generated by pulling information from the digital records. This information will contain as a minimum the 9 boxes required for the completion of the VAT return but can also contain a specific data set of supplementary information, all of which will be pulled from the digital records.

Businesses submitting monthly or non-standard period returns will be able to continue to do so. The VAT annual accounting scheme will also be retained with the current conditions. Businesses making these types of returns will also be required to keep digital records and submit their VAT returns through software.

Under the new rules some businesses may choose to voluntarily provide further information:

Periodic updates

Businesses will be able to submit VAT information more frequently than their VAT return obligations require on a voluntary basis as a ‘voluntary update’.

Supplementary data

HMRC believes that businesses and HMRC could benefit from the submission of supplementary data detailing how the figures in the return are arrived at. HMRC believe this additional data will help them target non compliance. The software will allow for the voluntary submission of supplementary VAT data as part of a VAT return or a voluntary update. This will allow HMRC to test with businesses the extent to which they and HMRC can benefit from such supplementary data.

Timescale

VAT is the first tax to be reportable under MTD and businesses within the scope of MTD will need to keep their records digitally, using approved MTD functional compatible software, from 1 April 2019. The software will create the return from the digital records and this will need to be submitted under MTD for return periods starting on or after 1 April 2019.

We will keep you informed of developments in this area and ensure we are ready to deal with the new requirements. Please contact us for more information 0116 2423400

PAYE quarterly payments are due for small employers for the pay periods 6th April 2017 to 5th July 2017.

This deadline is relevant to small employers and contractors only. As a small employer with income tax, national insurance and student loan deductions of less than £1,500 a month you are required to make payment to HMRC of the income tax, national insurance and student loan deductions on a quarterly basis.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st July 2017 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd July. In year interest will be charged if payment is made late. Penalties also apply.

PAYE Student loan and CIS deductions due for the month to 5th July 2017.

This deadline is relevant to employers who have made PAYE deductions from their employees’ salaries and to contractors who have paid subcontractors under the CIS.

Employers are required to make payment to HMRC of the income tax, national insurance and student loan deductions. Contractors are required to make payment to HMRC of the tax deductions made from subcontractors under the CIS.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st July 2017 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd July. In year interest will be charged if payment is made late. Penalties also apply.

Class 1A NIC due for 2016/17.

This deadline is relevant for employers who have provided their employees with benefits for 2016/17. These benefits should have been reported by the 6th July and the amount of the Class 1A employer only NI liability due calculated on the form P11D(b).

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st July 2017 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd July. Interest will be charged if payment is made late. Penalties may also apply.

The items that have caught my attention and I think are relevant to most people are as follows:

National Insurance for the self-employed

At present, if self-employed, you pay class 2 National Insurance of £145.60 for a complete year, and class 4 at 9% based on your level of profits. The Government do not think that this is fair as employees pay National Insurance at 12%. To level this position, class 2 National Insurance will be abolished from 06/04/2018 and the class 4 element will increase to 10% from that date, and to 11% from 06/04/2019, thus bringing the self-employed more in line with the employed.

Dividend changes again …

From 06/04/2016 broadly the first £5,000 of dividend income is taxed at 0 % (Dividend Allowance). This will continue until 05/04/2018. However, from 06/04/2018 the Dividend Allowance will reduce to £2,000. This will mainly affect the family company shareholder and increase their tax liability as follows:

Basic rate taxpayer – additional tax of £225

Higher rate taxpayer – additional tax of £975

Additional rate taxpayer – additional tax of £1,143

Individual Savings Accounts (ISAs)

The overall limit is increasing from £15,240 to £20,000 on 06/04/2017.

Property and trading income allowances

Although this was mentioned last year it comes into play on 06/04/2017. It is as it says, so if you have property or trading income of £1,000 or less you will no longer need to declare this or pay tax on it. This could cover small amounts of rent from Air ‘bnb’ activities or trading on ebay.

New Childcare provisions

If you are taking out new childcare provisions from 06/04/2017 then, instead of opting for a salary sacrifice scheme and receiving vouchers, for every 80 pence that you contribute the Government will contribute 20 pence. The maximum the Government will contribute will generally be £2,000.

Making Tax Digital

This will be introduced on 06/04/2018 for businesses, the self-employed and landlords who have profits chargeable to Income Tax and pay Class 4 National insurance Contributions where their turnover is in excess of the VAT Threshold, which will be £85,000 from 01/04/2017.

From 06/04/2017 this is changing, but it is still beneficial for both the employer and employee to sacrifice salary in respect of employer provided pensions, childcare vouchers, workplace nurseries and cycle to work schemes.

Construction Industry

The government are launching a consultation on 20 March 2017 to look at various areas, including the qualifying criteria for Gross Payment Status and options to combat VAT supply chain fraud in supplies of labour.

In addition to the above, certain other changes come into force on 06/04/2017 that have been mentioned in earlier Budgets namely:

Restrictions on residential property interest

Landlords will no longer be able to deduct all of their finance costs from their property income.

Inheritance Tax residence nil rate band

There will be an additional nil rate band for deaths on or after 06/04/2017 where an interest in a main residence passes to direct descendants.

As mentioned above I have only mentioned the areas that I believe will be most relevant to the majority of our clients but other areas can be found on our website.

With the madness of the January tax return deadline, it may have slipped some of your minds to actually pay your self-assessment bill. If this is the case then you may be wondering how you will be penalised for doing so.

For those that have filed their self-assessment tax return before the deadline but have not paid the bill, there will be interest accruing at 2.75% pa for the first 30 days.

However, after 30 days from the deadline the full amount of tax due will be subject to a 5% penalty. This means that if you had a liability of £5,000 unpaid by midnight on 2 March 2017, there would be an immediate fine of £250 added to your account.

Similarly, if after 6 and 12 months from the filing deadline you have not paid the full balance, then there would be additional 5% penalties on the tax outstanding at those dates.

Furthering the example above, should there still be an outstanding debt of £5,000 on 1 August 2017 then an additional £250 penalty will be accrued and if the debt has still not been settled by 1 February 2018 then another £250 will be added. This means that within just 12 months, a £5,000 tax bill will have penalties totaling £750.

On top of this there will also still be interest accruing on both the tax and penalties. Making the estimated amount owing on 1 February 2018 £5,887.

On Wednesday 23 November 2016 our new Chancellor of the Exchequer, Philip Hammond, delivered his first (and last) Autumn Statement.

“No other major economy makes hundreds of tax changes twice a year, and neither should we” – this is perhaps the most welcome measure announced in the Autumn Statement. In recent years the Autumn Statement has been a mini-Budget, meaning that many, sometimes significant, tax changes were being announced twice a year. This has been problematic in terms of giving taxpayers a reduced degree of certainty regarding planning their tax affairs (plus it means I have to write an extra blog each year) so for this announcement alone, Philip Hammond gets a ‘thumbs up’ from me!

Following the spring 2017 Budget, the Budget will be delivered each autumn – spring will be reserved for a statement from the Office of Budget Responsibility to respond to their previous forecast. The odd tweak of fiscal policy may be made each spring, if economic circumstances require it – personally I think this option has been retained so the Government are able to be more flexible in response to the future impact of Brexit (you can infer from that what you will…I’m taking it as that they have no idea what the impact will be). I’m also hoping that an autumn Budget will give more time for us all to absorb the changes before they come into force the following April.

Our full Autumn Statement roundup can be found on our website here, but below are the main points that I think are relevant to our clients and their businesses. A lot of the announcements aren’t new, but are instead Philip Hammond confirming that he plans to keep some of his predecessor’s policies.

Personal Tax Rates and Allowances

The personal allowance is currently £11,000 and will increase to £11,500 from April 2017. The reduction in personal allowance for those with higher income (‘adjusted net income’ over £100,000) remains so that, from April 2017, there will be no personal allowance available where ‘adjusted net income’ is over £123,000.

The higher rate threshold will increase from £43,000 currently to £45,000 from April 2017, for those who are entitled to the full personal allowance.

Philip Hammond confirmed his intention to keep George Osborne’s policy to increase the personal allowance to £12,500, and the higher rate threshold to £50,000, by the end of this Parliament.

Corporation Tax Rates and Allowances

The new corporation tax rates from April 2017 to March 2021 were announced at the Budget and have now been enacted – the rate will be reduced from 20% to 19% from April 2017 and a further 2% to 17% from April 2020, which will be welcomed by small and large businesses alike.

Again, this was announced in the Budget but has been kept by the new Chancellor – corporate losses (excluding capital losses) arising after 1 April 2017, when carried forward, will be able to be used against future profits from other streams. Currently there are restrictions on how the losses can be relieved, which is restrictive for certain types of business.

National Insurance Contributions (NIC)

Previously payable by the self-employed, Class 2 NIC is being abolished from April 2018 – we knew this was coming, however what we didn’t know was how self-employed taxpayers would get entitlement to basic state pension and other contributory benefits and allowances, as payment of Class 4 NIC (also paid by the self-employed) has not in the past been ‘contributory’. From April 2018, Class 4 NIC will become ‘contributory’ and those paying it will be entitled to state pension etc. Those with income below the Small Profits Limit (£5,965 in 2016/17) will be able to pay Class 3 NIC, currently £14.10 per week to ‘top-up’ their entitlement. There will no longer be the option for these individuals of voluntarily paying Class 2 NIC, for which the current rate is a mere £2.80 per week!

The Office for Tax Simplification are tasked with – you guessed it – making tax simpler. One of their recommendations that is being implemented is the alignment of the thresholds at which employees and employers pay Class 1 NIC.

Other Payroll Matters

Having only been increased in October 2016, The National Living Wage is increasing from £7.20 to £7.50 from April 2017 and smaller increases to the National Minimum Wage are also coming in – full details on our website here

I mentioned in a blog post on 11 October 2016 that the Government have been consulting on the use of salary sacrifice schemes and on Wednesday, the Chancellor outlined the changes to be introduced from April 2017. Salary sacrifice arrangements (other than relating to pensions, childcare, cycle to work and ultra-low emission cars) entered into after this date will no longer enjoy tax and national insurance savings – however agreements entered into before this date will remain tax and NI-free until April 2018, so subject to the administrative hurdles that have to be jumped for an effective salary sacrifice, there’s still some mileage left in them yet!

Philip Hammond continues George Osborne’s assault on company car drivers with a further 2% increase in the percentage applied to each band of company car from April 2018, and a further 3% from April 2019. From April 2017, pure electric cars will be charged at 9%, rising to 13% in April 2018 and 16% in April 2019 – a huge increase from the 7% benefit in kind in the current year. I can only assume this is a reaction to the amount of employers who have provided these cars to employees, and benefited from the low rate. I do find it a little disappointing that tax incentives are introduced to encourage certain behaviours (such as the provision of electric cars) and then as soon as people actually take the Government up on their offer, it effectively gets withdrawn – this is especially harsh when it relates to company cars as many of these will be leased over a number of years and therefore the business and employees are stuck with the cars that no longer afford them the low tax charges that were in place when the vehicles were first provided.

VAT Flat Rate Scheme Anti-Avoidance

Businesses registered for VAT under the flat rate scheme pay over VAT at a specific rate (currently between 4% and 14.5%) as determined by their type of business – it simplifies the accounting for VAT as these businesses pay VAT over to HMRC at a lower rate than the 20% they charge to customers, but do not reclaim VAT on most expenses. For many small businesses, this can be both time-saving and money-saving. From April 2017 a new 16.5% rate will apply to businesses with limited costs (i.e. labor-only businesses) using the flat rate scheme. The details on which businesses will be affected by this are on our full Autumn Statement update here

Making Tax Digital

HM Revenue & Customs are consulting on various measures intended to bring the UK tax system into the digital age. A major change is that from April 2018, most self-employed taxpayers and landlords will be required to keep their records digitally, update HMRC at least quarterly, plus submit a year end declaration. While HMRC are keen to emphasis that this does not mean five tax returns per year, we eagerly await the details on how the proposals will work in practice when HMRC issue their response to the consultations in January 2017.

If you want to discuss any of this further then please get in touch here.

PAYE quarterly payments are due for small employers for the pay periods 6th July 2016 to 5th October 2016

This deadline is relevant to small employers only. As a small employer with income tax, national insurance and student loan deductions of less than £1,500 a month you are required to make payment to HMRC of the income tax, national insurance and student loan deductions on a quarterly basis.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st October 2016 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd October. In year interest will be charged if payment is made late. Penalties also apply.

PAYE, Student loan and CIS deductions are due for the month to 5th October 2016

This deadline is relevant to employers who have made PAYE deductions from their employees’ salaries and to contractors who have paid subcontractors under the CIS.

Employers are required to make payment to HMRC of the income tax, national insurance and student loan deductions. Contractors are required to make payment to HMRC of the tax deductions made from subcontractors under the CIS.

Where the payment is made electronically the deadline for receipt of cleared payment is Friday 21st October 2016 unless you are able to arrange a ‘Faster Payment’ to clear on or by 22nd October 2016. In year interest will be charged if payment is made late. Penalties also apply.

Tax and NI due under a 2015/16 PAYE Settlement Agreement

This deadline is relevant for employers who have entered into a PAYE settlement agreement to pay tax and national insurance in respect of benefits in kind for their employees for the year ended 5th April 2016.

Where the payment is made electronically the deadline for cleared receipt of cleared payment is Friday 21st October 2016 unless you are able to arrange a ‘Faster Payment’ to clear on or by Saturday 22nd October 2016.

If you would like to discuss this in more detail then please get in touch here.